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Standard Operating Agreements

A standard operating agreement, or operating agreement, is used with limited liability companies (LLCs). Such an agreement structures the way the LLC is set up and the way it operates.

  1. Purpose

    • When an LLC is formed, an operating agreement is created that states the working relationship of the members of the company. It is designed to state the rights and responsibilities of members, as well as details regarding the operations of the business.

    Features

    • An operating agreement states each member's name along with his ownership percentages, rights and responsibilities. It explains how profits and losses are allocated and the procedures to be followed if a member leaves the business. Every state has different requirements for forming an LLC. State laws and regulations govern the operating rules of LLCs.

    Benefits

    • Operating agreements allow a way for members to avoid misunderstandings within the business. The agreement outlines the exact operations and obligations of the business and the members. An operating agreement also protects the limited liability of each member. It is a legal document that is allowable in court, if necessary.

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